All hands are on deck to kick housing construction into high gear, but is there an end in sight to the affordability crisis?

Economics 101 dictates that when demand for a product exceeds supply, prices jump.

It’s a pretty simple equation that’s seen housing affordability sink to all-time lows in Australia, as a surging population has swamped the troubled construction sector.

In short, we’re not building enough homes to meet demand and that’s led to soaring prices.

As population growth has reached record highs in recent years, the price of an average home has skyrocketed, jumping more than 45 per cent to $800,000 over the past five years, while rent has been on a similar steep climb.

At the end of 2024, the average Aussie household, on a median annual income of $101,000, could only afford about 10 per cent of homes in the country, according to research by Core Logic and ANZ. That’s in stark contrast to mid-2022, when around 40 per cent of the country’s housing stock was within reach for the same family.

This affordability crisis is a massive headache for the Federal Government, with housing shaping as a key issue for the upcoming federal election, due to be held on or before May 17.

While long-awaited interest rate cuts may ease the squeeze, industry stakeholders agree the only long-term solution is to ramp up construction and bring supply up to meet demand.

But that’s easier said than done after years of turmoil in the construction industry, including corporate collapses, surging costs and material and labour shortages.

Throughout the pandemic years, building costs have jumped by an average of 28.5 per cent per home, with houses also taking longer to build, according to the ABS, particularly in WA where the average time to complete a house had blown out from around seven months in September 2019 to more than 16 months by March 2024.

So, at a time when home-building really needs to pick up, it’s actually slowing down. Building approvals for 2023/24 dipped to their lowest level since 2011/12.

And as industry groups call for action on a growing crisis, the Federal Government has stepped in with a flagship agreement it hopes will turn things around – The National Housing Accord.

What is the National Housing Accord?

In a nutshell, the accord is a five-year agreement between all levels of government and housing stakeholders – including institutional investors and building industry representatives –to prioritise home-building.

It acknowledges that while governments can’t actually build the homes – that’s down to the private sector – it can tweak laws and policies to help get housing developments out of the ground faster.

The accord has set a target of 1.2 million new dwellings (this includes houses and units) built within its five-year span, which kicked off in July 2024 and runs through to the end of June 2029.

How achievable is the target?

To meet the target of building 1.2m dwellings by July 2029, the building industry would need to complete an average of 240,000 new homes each financial year for the next five years.

That’s more homes than have ever been built annually. More recently that number has hovered around 171,000, so hitting 240,000 homes a year would require a jump of close to 40 per cent.

It is an ambitious target, with some commentators fearing it may be unachievable. But without intervention it’s projected that home building will lag new annual demand until 2026/27, according to National Housing Supply and Affordability Council estimates (see table). So, Aussies can expect housing to remain tight well into 2026.

Australian housing supply vs demand forecast

How does the accord hope to change things?

The accord aims to tackle what have been identified as major roadblocks to residential development including:

• Slow and inconsistent approaches to approvals, zoning and land releases.
• Restrictive taxes such as stamp duty.
• Skill shortages and low levels of productivity and innovation in the construction sector that slow the building process.

Home buyers will hopefully benefit from the changes already rolling out, including:

• The abolition of stamp duty for first-home owners who buy or build a new house or unit in South Australia, regardless of price. Victoria has slashed stamp duty for off-the-plan apartments and Federal Housing Minister Clare O’Neil has called on all States to ditch the tax that adds tens of thousands to the cost of a home.
• In NSW, the Government has stripped councils of the power to block major residential developments for the period of the accord. From January 8 this year, residential developments exceeding $30m in regional areas and $60m in Sydney can bypass local planning authorities and, instead, go to a State-run housing delivery authority for approval.
• Trials are underway in WA, Queensland and NSW of prefab and modular housing options which will be quicker and cheaper to build. The Federal Government is moving to fast-track approval and certification processes for these builds.
• An online league table to monitor and rank local government authorities across NSW according to how long they take to process development applications, with financial incentives for the fastest.

Even if the ambitious target of 1.2 million homes is not fully realised, the National Housing Accord is poised to bring much-needed reforms to the housing sector. Its success will depend on sustained collaboration between government, industry and investors.

Article from Haven Magazine - Spring Edition